Real Estate 101: Easements Gone Wrong
By D. Michael Chesser, Esq.
Drafting an easement is a bit like you and me landing an airplane. There will be mistakes. The difference is that you will know very quickly how the plane lands. It may be years before you know how bad your easement was.
I have just met a man whose first language is not English, and in fact who needed a friend to help him describe his questions. This man had scrimped and borrowed to buy a piece of land to build a business. He paid the appraised value and got a title policy for a lot burdened only by an easement for a billboard that was already on the land. Enough property existed that the sign didn’t interrupt his intended use of the property.
Everyone was happy until this person tried to get a mortgage to build on the property. The bank saw that the easement was what’s called a “blanket” easement. That means that the legal description of where the easement was located was actually the legal description of the entire parcel, not just the location of the sign. Apparently, when the sign company prepared the easement agreement (for a prior owner of the property) the company did not have an exact description of the location on the property where the sign was to be located. It’s also possible that the sign company didn’t know exactly where on the property they would put the sign, just that it would go there, somewhere. The Owner apparently didn’t know enough, or care enough, to understand the consequence of that “blanket” easement. Therefore, the Company placed a permanent easement across the entire lot. That gave the billboard company the right to move the sign anywhere on the property, or in order to maintain visibility, to insist that nothing be built as high as the sign, anywhere on the property. It also means that nothing can be done with this property that is more permanent than growing a crop of corn, and even the corn could be cut down if it got in the way of the location, or relocation, of a billboard. This billboard stains this property like a big ugly tattoo, forever.
Many problems in real estate can be fixed. Most of them take money, because someone who knows what they are doing has to fix it, and most fixes take time. If you are someone who borrowed to buy a piece of commercial land, believing you could put it to work to help make the payments, time is important. Paying a lawyer to fix a problem you did not expect, if it can be fixed, is also important, and could very well be the difference between foreclosure or bankruptcy and being able to pay the debt. In that sense, there’s not much difference between this man’s surprise legal quandary and an unexpected medical emergency. Both can have disastrous, long-term consequences.
The irony is that everyone else in this deal walked away happy. A previous owner, who must have realized that this property had almost no value, got his price. Commissions and title insurance premiums were paid. An appraiser got paid for rendering a full value appraisal as if this easement were merely an incidental interference with the use of the property. Everyone on one side of the table walked away satisfied.
On the other side, this poor man got land he cannot use, cannot pay for, and that will now be the source of misery.
What are the lessons from this closing?
- There is no limit to the kinds of easements that affect real estate. Anyone who believes an easement can be drafted in five minutes and the easement will be “good enough” to get by in a closing probably doesn’t understand the subject. Like landing that airplane, the preparation of an easement is not for one who’s never done it before.
- Our whole industry ought to understand that a closing like this can’t happen without our industry looking inept and dishonest, even if we aren’t. The brokers, the appraiser, and the title company, all knew what this man intended to do with his property. Somewhere out there is a jury that would say that even though everyone covered himself with paperwork, this closing just looks bad. The cost of defending a simple malpractice action, even if you win, outweighs the cost to reputation and sheer money cost of defending a lawsuit. If this closing is deemed to be the result of fraud or concealment, the reputation costs are even higher.
- Errors like this can only happen when no one at the table has a legal duty to protect the buyer. Especially in a commercial deal, everyone involved can walk away comfortably if the buyer has been represented by his own lawyer. If he or she does nothing more, that lawyer relieves everyone else in the deal from a legal expectation to protect the buyer. It was not my purpose that this first article of the year carry a negative message. Please don’t leave with that. The reason we look at past mistakes is to avoid making them again. I wish for each of you a happy and prosperous New Year.
D. Michael Chesser is a real estate and business law attorney in Shalimar, Florida. He is President of Chesser & Barr, P.A. and Old South Land Title, Inc. and a member of the Emerald Coast Real Estate Council Board of Directors. You can reach Mike at mike@chesserbarr.com.